Tax breaks are the name of the job-luring game

Whenever Gov. Jennifer Granholm makes her monthly announcement of tax breaks for businesses staying or coming, she asks the recipients who will be hiring. Everyone raises their hands.

As did convicted embezzler Richard Short, currently residing in the Genesee County jail, on March 16 after receiving a tax break potentially worth $9.1 million.

Next month, Granholm is not likely to ask if anyone on stage is a felon. Per last week’s executive order, the state’s economic development team presumably will have vetted it. Lawmakers, too, rushed to close the proverbial barn door to ensure there isn’t a repeat.

But few questioned the value of the breaks. Why? They’re still relatively inexpensive. And they’re popular in local development offices across Michigan.

Granholm presides over a state with 14.1 percent unemployment, but is lauded in Site Selection magazine because Michigan finished third among states in major, incentive-fueled business expansions the past two years.

In a study for the Michigan Education Association, however, East Lansing economist Patrick Anderson said some abatement programs may work, but the state’s problem requires “broader policies proven to promote economic recovery,” including a smarter business tax climate and workforce. Others would toss in infrastructure investment.

That stuff costs a lot more and requires politically hazardous votes.

Cutting business taxes by nearly $1 billion and paying for it by expanding the sales tax base has little support in the Legislature. Republican budgets cut aid to K-12 and colleges next year. Democrats cut road construction by more than $500 million.

Tax incentives that provide jobs for local communities over the long term and political dividends in the short term are a lot cheaper.

Much of the “cost” of the incentives reflects tax forgiveness in exchange for jobs created — “pay for performance,” says Greg Main, president of the Michigan Economic Development Corp. It’s a loss in revenue only if the business expansion would have taken place without the incentive.

The cost of refunds to companies whose credits exceeded their tax liability was about $105 million in fiscal 2010. Estimated cost of separate Michigan film incentives is $155 million this year.

Thus, scrapping the tax breaks wouldn’t provide enough money to cut business taxes to a level that would make the incentives irrelevant from a competitive standpoint. And even if Michigan eliminated business taxes entirely, other states could trump that with millions in cash, free land and job training subsidies.

And Michigan is getting into a higher-stakes game right now, competing for alternative energy firms with refundable tax credits that will cost more than $1 billion over the next decade. Those breaks, like the film incentives, will indeed mean less money for education and other essential services.

Since states aren’t going to stop vying for jobs, the only way to end the race is through federal intervention. One idea would levy a federal corporate tax equal to 100 percent of state subsidies, so there would be no point in businesses playing states off each other.

Until that happens Granholm and lawmakers, or their successors elected in November, have no choice but to compete against Tennessee, Indiana or Ohio for jobs. They wouldn’t be doing their jobs if they didn’t.